Yields rise on stronger data, before supply

* US GDP, capital goods orders improve * Treasury to sell $88 bln supply next week By Karen Brettell NEW YORK, - U.S. Treasury yields rose on Thursday after data showed improving economic growth, and as investors prepared for new Treasury supply next week. Data showed that the U.S. economy grew faster than initially thought in the third quarter, notching its best performance in two years, amid solid consumer spending and a jump in soybean exports.

New orders for U.S.-made capital goods also rose more than expected in November amid strong demand for machinery and primary metals, suggesting some of the oil-related drag on manufacturing was starting to fade. "The data was stronger than people expected," said Tom di Galoma, a managing director at Seaport Global Holdings in New York.

Prices pared losses, however, after additional data showed that U.S. consumer spending increased modestly in November as household incomes failed to rise for the first time in nine months, suggesting economic growth slowed in the fourth quarter.

Benchmark 10-year notes were last down 3/32 in price to yield 2.55 percent, after earlier rising as high as 2.58 percent, up from 2.54 percent late Wednesday. Investors are also preparing for the sale of $88 billion in new coupon-bearing supply next week, which will be sold when many traders are away on vacation and with some European markets also still closed on Tuesday. "You're seeing a setup going into the Christmas holiday for Treasury supply," said Tom di Galoma."A lot of Europe will be off next week ... I think that's going to present a little bit of a problem for supply." The sales will comprise $26 billion in two-year notes on Tuesday, $34 billion in five-year notes on Wednesday and $28 billion in seven-year notes on Thursday.

The Treasury sold $14 billion in Treasury Inflation-Protected Securities (TIPS) on Thursday at a high yield of 0.120 percent. Some investors are also wary of buying bonds as they evaluate how many times the Federal Reserve is likely to raise interest rates next year.

The Fed was more hawkish than expected at its December meeting last week, indicating that it may raise rates three times next year. That helped to send 10-year note yields to a more than two-year peak and two-year note yields to their highest levels since 2009. Yields have soared since Donald Trump's victory in the U.S. presidential election last month, as investors bet that he would implement new fiscal stimulus that would boost growth and inflation. (Editing by Frances Kerry; Editing by Chizu Nomiyama)

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